The time has come for Australian media and entertainment companies to make ‘frenemies’ by collaborating and partnering with rivals to achieve growth, with the strong headwinds facing traditional media players set to continue through to 2021, according to a PwC report released today.
PwC’s 16th annual Australian Entertainment & Media Outlook shows that total consumer and advertising spending slowed significantly to 2.1 percent in 2016, compared to 6.4 percent in 2015, reflecting a subdued economy and pressures on advertising-supported business models.
According to Megan Brownlow, PwC Australia's Entertainment & Media Industry Leader, Australian media and entertainment companies are facing a strategic shift that can be described as ‘blurring’ due to market conditions, and must make frenemies rather than trying to go it alone and invest in every customer-centric capability at the one time.
“Across Australia’s media and entertainment industry we continue to see a strong divergence in traditional and digital media spend. The story has been the same for a number of years now,” Ms Brownlow said. “Instead of entrenching the dichotomy between traditional and digital players, this trend is forcing companies to take a different approach and has led to blurring of business functions, business models and of industries.
“Competition is no longer a zero sum game - the new competitive landscape is underpinned by frenemies. We’re seeing three new circumstances arising as companies seek other revenues using their natural competitive advantage: competitors are potential new clients, or new partners, and key suppliers are now competitors somewhere else in the value chain.
“Old-school thinking will need to change as collaborating with rivals becomes the norm. Negotiation is cheaper and more effective than combat. The way to grow in this environment is to identify gaps in the customer experience and collaborate or partner with a competitor or technology provider to address this gap,” she said.
PwC's entertainment and media partner, David Wiadrowski, said another way to grow is to become “a platform company”.
“Customer expectations are constantly rising but the entry of global players into our market is accelerating this process. Traditional players have extended their businesses to the Internet, but if they are going to continue to meet the wants and needs of their customers and remain competitive, a wholesale strategic shift is required,” he said.
“Now is the time to evolve from a product focused company to a platform company. The transformational journey will be different for each company, but it is underpinned by collaboration. Cloud technology is one way to leverage the power of platforms. It’s cheaper and it means your ability to innovate won’t be constrained by lagging physical hardware.”
Online video the driver of growth
The rush of consumer and advertising dollars from traditional media to digital will continue over the next five years, underpinned by strong gains in video and mobile as consumers shift their device and viewing habits.
Internet advertising is on track to account for 55 percent of the total Australian advertising market by 2021, when it will reach $10 billion. Online video was the fastest growing area of Internet advertising in 2016, now representing a third of display expenditure. It is expected to continue to achieve double digit growth over the next five years, with a compound annual growth rate of 23.8 percent, the second fastest growth rate across all categories, after mobile advertising.
Currently, the proportion of Internet advertising going to digital pure plays is 90 percent. This is forecast to decline slightly over the forecast period as traditional media moves more strongly into online video. Traditional players in television, newspapers, magazines and radio are moving into online video, and over the five year forecast period will gain share from digital pure plays as a result.
Growth in Subscription Video on Demand (SVoD) indicates the consumer market is benefiting from increased choice and attractive prices, with growth forecast at 16.4 percent compound annual growth rate to 2021. “New entrants such as Netflix and Amazon Prime are helping educate Australian viewers that it is okay to pay for content,” says Brownlow.
The next big thing in sport: eSport
Brownlow believes the growth in the core audience for interactive gaming and the rise of a passive audience watching gamers will be a boon for marketers.
“The next big thing in sport is eSports. It’s now a large-scale spectator experience that’s blurring with mainstream culture. The 2016 League of Legends World Finals was watched by 43 million viewers. Investment in eSports is coming from private equity, games publishers and traditional sports teams, for example, Adelaide Crows recently became the first mainstream Australian sports organisation to purchase a professional eSports team, Legacy eSport,” she said.
“Sport has always delivered viewing for broadcasters and significant opportunities for companies trying to reach a sizable audience, and it will be no different with eSports. The next five years will see marketers, broadcasters and sports leagues taking more of an interest in gamers and gaming, particularly as they seek ways to be relevant to Generation Z - those born between 1995 and 2010.
“The opportunities in sponsorships, for example, will be huge in eSports because it’s not disruptive. One of the traits of Generation Z is that their tolerance of advertising is extremely low, unless it’s authentic and customised. They like brands that support their interests, so finding synergies with eSports teams or players will be key.”
Additional key data and graphs from PwC’s 16th annual Australian Entertainment & Media Outlook:
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.
© 2017 PwC. All rights reserved.
Head of Media, PwC Australia
Tel: +61 2 8266 3175
Mobile: +61 467 654 011